Initially, the primary medium of fundraising for blockchain projects was the Initial Coin Offering. Hundreds of ICOs emerged after the first ICO launch in 2013 by MasterCoin.
However, due to the questions around the regulatory and crowdfunding future of Initial Coin Offerings, ICOs had to confront a drop-off in the latter half of 2018.
As a result, STOs emerged as a solution to the issues that occurred because of ICOs. At the same time, a new approach called Initial Exchange Offering (IEO) came as an appealing opportunity to raise capital in a secure and efficient way. They provide an extra layer of security and trust that ICOs lacked in the past.
Due to its additional features, investors and companies are getting attracted towards seeking funds with this new approach.
This article will help you understand what is Initial Exchange Offering, what benefits does it benefit and how to launch it successfully.
Let’s start with What is Initial Exchange Offering.
What is Initial Exchange Offering?
As the name suggests, Initial Exchange Offering is performed on the platform of a cryptocurrency exchange. In this mechanism, a crypto exchange functions as a counterparty and seeks to raise funds on behalf of companies. Developers mint the tokens for startups and send them to exchange where investors can buy tokens.
It requires users/contributors to purchase the tokens by creating an account on the Exchange platform. The project team needs to meet and comply with the exchange’s platform requirements to initiate token sales.
In Initial Exchange Offering, all the obligations are handled by the exchange platform, bringing more trust to the ecosystem. That is the reason why it is gaining a lot of traction among startups looking to raise funds with crypto tokens.
Since it is clear what is Initial Exchange Offering, let’s discuss some of its benefits that make it a better option to raise funds for blockchain projects.
Benefits of Initial Exchange Offering
Trust is one of the significant benefits of Initial Exchange Offerings. Because the crowdsale runs on the crypto exchange platform, the counterparty is responsible for screening each project looking to launch an IEO for raising funds.
Exchanges ensure to vet token issuers carefully to maintain their good reputation. Therefore, it can always eradicate suspicious and scam projects from raising funds through exchange platforms.
RAID project is one of the best examples to understand how IEO brings trust in the system. Bittrex recently announced that it had canceled the RAID project just a few hours before the beginning of crowdsale. Explaining the reason, Bittrex team said that OP.GG terminated the partnership with RAID, which was earlier a crucial part of that project. Bittrex could not take a risk by launching something that was not in the best interest of their customers.
The reputed exchange platforms always perform due diligent checks on the project and the team supporting it and carefully decide on allowing to launch an Initial Exchange Offering.
Startups looking to issue tokens can be benefited from a streamlined and more straightforward way to launch IEOs on the exchange platform. Though the fundraising organizations have to pay a specific fee to the exchange, the cost to do AML/KYC and other activities are reduced.
Also, because exchange platforms already have an existing customer base, there is no need to focus on the customer base from scratch from day one.
Token Issuers do not need to worry about the security of the crowdsale as the exchange platform manages the smart contracts of token sales and have defined security standards.
Also, exchange platforms manage the process of AML/KYC ensuring the complete security of the project and prevent it from suspicious or fraudulent users.
In Initial Exchange Offering, the exchange is responsible for listing the token once the crowd sale gets over. Though the listing fee could be high and exchanges may also demand a specific percentage of the tokens sold, it is only the exchange platform that manages everything related to token sales.
IEO vs STO
|Definition||Raising funds by issuing utility token||Raising funds by issuing asset-backed token|
|Token Sale Platform||Cryptocurrency Exchange||Security Token Platform|
|AML/KYC||Exchange platform is responsible for KYC of users||STO Platform is responsible for KYC of users|
|Project Screening||Exchange Platform||SEC|
|Marketing||Token issuer can reach the exchange’s users by getting listed on the exchange during the IEO wituout additional marketing budget||Token issuer needs to market the security tokens to individual investors or institutions with a planned marketing budget|
|Benefits to Investors||Utility Tokens||Security tokens representing equities|
|Set up Difficulty||Medium||Hard|
How to launch Initial Exchange Offering?
We have divided the Initial Exchange Offering into the following stages:
a. Come up with an Idea
Before you plan to launch an Initial Exchange Offering, you should come up with an idea and ensure if it is feasible. It is crucial that you are aware of the market needs.
Analyze why your project could be better than that of the competitor. Coming up with a plan based on understanding and experience and how it is going to be executed can help you launch the project successfully.
You need to ensure why investors will put their capital to purchase your token.
Also, you need to make sure that the project looks legitimate and can successfully obtain a listing on the exchange platform.
Make sure to research successful projects using the same approach and try to identify the reason behind their success. It will help you get rid of the risk of failures.
b. Build a Strong Team
A strong team supporting the IEO project can increase the chances of a successful project. Gather a team of experts who have core knowledge of Initial Exchange Offering and blockchain space.
Building a good team is not enough; you may need to reach advisors or team members with a valid project idea.
The project might confront failure in case a team member or advisor leaves you between the project. Therefore, maintaining good relations with a team is equally important to building a team.
To make sure that you are building a strong team, find out what they did prior to IEO and confirm if they have enough experience or not.
A project backed by an experienced team can attract reputed investors and can generate targeted revenue.
c. Development underway/ MVP ready
Since it is launched on an exchange platform, it is essential that the project should have MVP ready or development underway. Renowned exchanges only list projects that has already made significant progress.
For instance, Bread (BRD) had a well-designed and functional app used by more than 100 million users before its IEO.
Nowadays, nobody believes in bare concepts and ideas. Therefore, an MVP or some development underway is a must for a project to be listed on the top exchange platforms.
Once you are prepared for your project with a solid idea, a strong team and some progress in the development of the project, it is time to move to the next stage where you need to choose an exchange platform, draft a whitepaper and create a roadmap.
a. Choose an exchange platform
The exchange platforms determine the future of the IEO trend and the competition pace. Their approach to selection criteria and due diligence matters for the projects in terms of gaining investors’ attention.
Also, the exchanges serve as counterparties between investors and startups. Since centralized exchanges have to control their users’ private keys completely, it is essential to choose an exchange platform with thorough research.
Here are some of the renowned exchange platforms where you can launch an IEO:
Started its operation in 2017, the co-founder and chief executive officer of Binance, Zhao Changpeng said during the interview with Bloomberg that it was not the first exchange which introduced the term “IEO.”
However, Binance is recognized as the world largest exchange by trading volume. Saying that the company does not see any other platform as its competitor, Zhao Changpeng said:
Other exchanges copying us is a strong validation of our model and the highest form of compliment. More importantly, we have limited bandwidth and are only able to find/help a small number of all good projects out there. The more we can help our entrepreneurs together with other exchanges, the better this industry will be. Again, when the industry gets bigger, everyone benefits. For this reason, we encourage others to copy our model. But the key here is they need to help good projects grow, not facilitate scams.
By launching the project on the Binance platform, BitTorrent made the cap in less than 15 minutes while Fetch.AI was able to sell their tokens in only 22 seconds.
Binance supports web, android, windows, mobile web, iOS and macOS and can process 1,400,000 orders per second.
- Huobi Prime
Huobi Prime was the first exchange platform after Binance that performed IEO successfully with the TOP Network project. The Huobi’s blog gives the following statement in terms of its achievement:
1.5 billion TOP tokens were sold in full, successful orders take one second on average to proceed, transactions take 7 seconds, 5 seconds and 7 seconds respectively in each round to complete, about 130 thousand people worldwide have participated and 3764 people have purchased.
No doubt that the exchange set up a new record and brought the transformation. However, this new record came with some downsides and Huobi platform was charged with allegations of insider trading, frauds and scams. As a result, the exchange platform made changes in its rules.
The platform introduced a new rule that participation is restricted to users with the daily holding of 500 Huobi tokens on average for 30 days before the launch.
Founded in 2014, Bittrex rushed into the IEO race with unmatched enthusiasm by announcing its first project in February 2019. The company decided to transform the market with the gaming project, hoping to gain immediate traction.
But the company canceled its first project, RAID a few minutes before the token sales start because of the significant changes in the RAID’s business status. The cancelation of the first project did not stop the platform from the second attempt.
The second project of Bittrex, VeriBlock sold out on April 2, 2019, in only 10.4 seconds.
Being one of the top exchanges by trade volume, OKEx did not want to stay behind in the race. As a result, the company announces its token sales platform called “OK Jumpstart” in March 2019.
Considering the criticism faced by the competitors, the company planned to set up the rules in advance. The company introduced “a subscription and allotment approach” to ensure token sales is an open and fair process.
Users can subscribe for token sales during the 30 minutes windows. Once they successfully subscribe for the sale, they are rated with the “allotment coefficient” based on the OKB holdings.
The company announced that the Blockcloud tokens were sold out in only 1 second. This statement left investors disappointed and they called it a joke.
As a result, OKEx responded and invited the community to participate for rules creation on Twitter saying:
The 2nd round of OK Jumpstart is starting soon! We understand that our rules are far from perfect and that’s why we need your feedback. Please help us improve our token sale by commenting on your suggestions below. We’ll pick 5 best comments and prize 10 USDT each on Apr 18.
Kucoin is one of the well-known exchanges that also joined the IEO race introducing new platform Spotlight in March 2019. The first IEO performed by Kucoin for MultiVac project sold out in only 7 seconds and gained the attraction of users from 59 countries.
Initially, the company set up simple rules and the requirement was only a verified account and they decided the principle “first-come, first-served.” However, the company met with the criticism around restricting regulator investors from the participation and therefore, Kucoin now has planned to use the lottery system in the future.
Ensure to consult the team of experienced professionals before you go ahead with any of the above exchange platforms.
b. Whitepaper Drafting
The next important step to launching a successful IEO is drafting a whitepaper.
A whitepaper is an extensive document that helps investors to make informed decisions. It acts as a selling proposal which explains every aspect of the project.
From the objective of the project to market analysis, development strategy, token information, exchange platform’s details, legal issues, potential investors and team members, a well-document whitepaper should cover everything that investors would like to know.
Not every investor may read an entire whitepaper; however, it could be possible that few people will read the whole paper.
Therefore, it is essential to satisfy people who will read the whitepaper as they are the ones who can invest in your project.
Here are some of the crucial tips that can help you to draft a professional whitepaper:
- Make your whitepaper readable by breaking down its content into smaller sections.
- Always mention the potential investors who can be benefited from the proposed project.
- Ensure to mention the current market and how it can be transformed with your solution.
- Since the critical audience of the project will be crypto-investor, it is essential to mention the token sales summary sheet.
- Since the token sale is performed on the exchange platform, do not forget to mention the exchange platform where you are going to launch the project.
- Always add flowcharts in the whitepaper to explain how the project will work and make sure that flow diagrams look well-organized and designed. You can use Draw.io, Lucidchart and OmniGraffle to create technical architecture and diagrams.
- Introduce the team supporting your project and mention their work experience. It will help you gain a lot of traction because investors put their interest in a project supported by a strong team.
Once the whitepaper draft is completed, you can start building a website that helps investors know more about your project.
c. Website Design & Development
A website can help you introduce your project to future contributors. Ensure that the site should load fast and run securely with hosting and DDoS protection.
You don’t need to integrate AML/KYC mechanism in the website as the exchange platform will handle it. You only need to make it look impressive and it should talk about your project and development progress.
Investors will come to your website to know about the blockchain product development status and how the project can benefit them.
d. Token Development
Token Development is the core stage where you need to create tokens for listing them on exchange for investors. Before you develop tokens, you should know how many tokens you want to issue and how its value is decided.
Tokens can be created using different blockchain platforms like Ethereum, NEO, EOS, and more.
a. Create a funding goal
It is essential to have a clear funding goal for the number of tokens that will go to IEO sale. The maximum funding requirement should also be clear before listing tokens on the exchange platform.
Establish a proper hard cap for funding to assure investors that the goal is tangible and practical. A hard cap states the maximum amount of funds that a project can raise.
A well-prepared funding goal reduces the chances of failures and scams from the project.
b. Listing tokens on the exchange
Once the tokens are minted, the next step is to list them on exchange platforms.
The exchange platform companies have specific rules and factors to allow the listing of tokens. Make sure you pass the selection criterion of the exchanges carefully.
After you pass the exchange’s due diligence checks and selection criterion, your token can be listed successfully and the token sales can be initiated.
After the tokens are listed on the exchange platform, you can market the project to reach potential investors and gain traction. To promote the IEO project, you can run below-mentioned marketing activities.
a. Social Media Marketing
Since every person is nowadays socially-active, it is essential to have a presence on social media websites like Facebook, Reddit LinkedIn and Twitter.
Create accounts on each of these websites and start posting updates about the project regularly. Make sure you interact with the investors on your social media channels and respond to their queries timely.
You can also run paid ads on social media websites to gain traffic and make people aware of the project you are going to launch.
b. Press Release and Outreach
It is crucial to tell people about the advantages and prospects of your project in publications. You should write submit press releases to the reputed websites and mention how the technology and your solution will help the investors and market.
Also, mention the background of the founders and roadmap of the project in the press release’s content. You can do PR both before and after the launch of IEO.
It is recommended to publish PRs in prominent media related to both technology and market you are targeting. It will help you to find the right followers and investors.
c. Blog Writing and SEO
Writing blogs and articles for your project can help you gain organic traffic to your website. Start writing and posting articles on different publications once or twice a week.
The quantity of content does not matter when it comes to marketing an IEO project. You should instead focus on enhancing the quality of the content. Try to find out publications that belong to your niche so that you can target the right audience.
Also, it is essential to make the website SEO optimized as it can improve the rankings of the website on the search engine result pages.
d. Commenting on related forums
Forums are designed for online discussion where people interact with each other in the form of questions and answers or comments. The posted content may also require approval from a team of moderators depending on the user access level.
Commenting or answering on forums can help provide support to the community. Also, you can share new updates related to your project. As a result, it will bring more potential investors to your project.
IEO is actively emerging. Investors have trust in the IEO projects as it involves a counterparty as an exchange platform that is responsible for token sales and all the actions related to investment.
If you are also looking to launch an Initial Exchange Offering, consult our IEO experts and discuss your requirements with us. We are partnered with the reputed exchange platforms and will help you through every step of the IEO launch process.
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